Salary vs Dividends
Salary or dividends from your corporation: a worked Ontario comparison, CPP and RRSP room, the 2027 dividend credit change, and the usual mix.
The short version
- Salary is deductible to the corporation, taxed as employment income, creates RRSP room (18% of salary) and requires CPP from both you and the company.
- Dividends come out of after-tax profit, carry no CPP, create no RRSP room, and are taxed with a gross-up and a dividend tax credit that gives back roughly the corporate tax already paid.
- In our Ontario example, $100,000 of corporate profit leaves about $71,900 in your pocket as salary and about $78,900 as dividends in 2026. But the salary route also puts about $9,300 into CPP and creates about $17,200 of RRSP room.
- Ontario's small business rate fell to 2.2% on July 1, 2026, and its dividend tax credit on non-eligible dividends drops on January 1, 2027, trimming the dividend advantage by about 1.15% of the dividend.
- Most owners end up with a mix. The right one depends on RRSP plans, CPP, benefits tied to net income, and whether family members are involved.
Salary vs Dividends for Business Owners
Every incorporated owner eventually asks the accountant the same question, usually in March: should I pay myself salary or dividends? The answer starts with "it depends," which is accurate, unsatisfying, and billable. So here are the actual numbers, the reasons they come out the way they do, and the situations that flip the answer.
How Each One Works
| Salary or bonus | Dividends (non-eligible, from small business income) | |
|---|---|---|
| Corporation | Deducts it, plus the employer CPP | Pays corporate tax first (11.2% combined in Ontario since July 1, 2026), then pays the dividend |
| You | Taxed as employment income | Taxed on 115% of the dividend, minus a dividend tax credit |
| CPP | Yes, both halves (about $4,650 each at $100,000 in 2026) | None |
| EI | Usually not, if you control more than 40% of the voting shares | None |
| RRSP room | 18% of salary, up to $33,810 for 2026 | None |
| Paperwork | Payroll account, monthly remittances, T4 | Directors' resolution, T5 slip by the end of February |
The dividend math is called integration. The 15% gross-up approximates the pre-tax corporate income behind the dividend; the dividend tax credit (9.0301% federal and 2.9863% Ontario of the grossed-up amount for 2026) approximates the corporate tax already paid. When it works perfectly, you end up in the same place either way. It never works perfectly.
The Numbers: $100,000 of Corporate Profit, Ontario, 2026
One owner, no other income, everything paid out this year.
| All salary | All dividends | |
|---|---|---|
| Employer CPP | $4,646 | – |
| Corporate tax | $0 | $11,200 (11.2%) |
| Paid to you | $95,354 salary | $88,800 dividend |
| Your income tax | $18,835 | $9,917 |
| Your CPP | $4,646 | – |
| Cash in your pocket | about $71,870 | about $78,880 |
| Same dividend in 2027 (lower Ontario credit, 2026 brackets) | – | about $77,860 |
| CPP contributed (both halves) | $9,292 | $0 |
| RRSP room created | about $17,160 | $0 |
Dividends win on cash by about $7,000, but $9,292 of the salary "cost" is CPP, which buys a pension indexed to inflation for life. If you value that pension, the gap mostly closes. At lower income the cash gap is similar in shape: on $60,000 of profit, about $45,900 as salary (plus $6,346 of CPP) against about $50,850 as dividends.
Try your own numbers, salary or dividends, in the should I incorporate calculator.
What should you pay yourself this year?
Enter your corporation's profit, province, what you need to live on, RRSP plans and family situation. The assistant compares salary, dividends and a mix, and shows the tax, CPP and RRSP room for each.
When Salary Makes More Sense
- You want RRSP room. Dividends create none. Maxing the 2026 RRSP limit takes about $188,000 of salary.
- You want CPP. A low CPP record means a smaller pension; many owners pay enough salary to reach the maximum pensionable earnings.
- You need to show employment income: mortgage applications, the child care expense deduction (it's limited by earned income) and some insurance products.
- Corporate income is above $500,000. Salary brings it back under the small business limit instead of paying the general rate.
- Benefits based on net income. A dividend counts at 115% in your net income, so $88,800 of dividends shows as $102,120. That matters for the Canada child benefit and Old Age Security clawback.
When Dividends Make More Sense
- You don't want CPP or already have enough pension coverage, and you'll invest the difference yourself.
- Simplicity. No payroll account, no monthly remittances, no T4.
- Family shareholders who qualify under TOSI, such as a spouse when you're 65 or older, or family members working 20 hours a week in the business; see paying your spouse.
- Flexible timing. A dividend can be declared once a year after you see the profit; salary needs to run through payroll when paid.
- Tax-free capital dividends from the capital dividend account, after the corporation sells something at a gain.
The Common Mix
Many owners pay enough salary to get the RRSP room and CPP they want, then take the rest as dividends, and leave whatever they don't need in the company at the low rate (or move it to a holding company). That last part is where the real saving is: tax deferral on profit you don't spend; see corporation vs sole proprietorship. Paying your kids is its own topic; see paying your children.
Mistakes That Cost Owners
- Taking money without deciding what it is. Withdrawals that aren't salary or a declared dividend sit in the shareholder loan account, and that has a deadline.
- Paying salary without a payroll account. Unremitted source deductions carry penalties and director liability.
- Forgetting the T5. Dividends need a T5 slip by the last day of February; see corporate tax deadlines.
- Skipping salary in a one-client contractor corporation. If it's a personal services business, salary to you is one of the few deductions it gets, and dividends come out of income taxed at about 44.5% in Ontario.
- Assuming eligible dividends. Dividends paid from small business income are non-eligible; eligible dividends come from income taxed at the general rate. The mechanics are on paying dividends from a corporation.
Rates for every province are on corporate tax rates; how the T2 reports dividends paid is on the T2 return. Your personal brackets are on tax brackets.
Salary vs Dividends Questions
Is it better to pay yourself salary or dividends in Canada?
It depends on your goals. Dividends usually leave a little more cash today because there is no CPP. Salary creates RRSP room and CPP pension credits and lowers corporate income. Many owners use a mix.
Do dividends count as income for RRSP room?
No. RRSP room is 18% of earned income, which includes salary but not dividends.
Do I pay CPP on dividends?
No. CPP applies to salary, not dividends.
How are dividends taxed in Ontario?
Non-eligible dividends are grossed up by 15%, then federal and Ontario dividend tax credits reduce the tax. For 2026 the credits are 9.0301% federal and 2.9863% Ontario of the grossed-up amount; Ontario’s credit drops to 1.9863% in 2027.
What is the top tax rate on dividends in Ontario?
For 2026, about 47.74% on non-eligible dividends and 39.34% on eligible dividends, compared with 53.53% on salary.
Sources: CRA, Completing the T5 slip; Line 40425 federal dividend tax credit; Ontario, Ontario dividend tax credit; 2026 Ontario Budget. Checked October 2026. Figures come from our 2026 Ontario rules engine and assume no other income, no EI (owner controls more than 40% of the shares), only basic credits, and the 11.2% corporate rate for the full year; a December 2026 year-end actually blends to about 11.7%. The 2027 line uses 2026 brackets, since 2027 brackets weren't published when we checked. Not advice for your situation.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.